Pay It Forward: Bringing Higher Education Back Within Reach

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If you've looked at a college tuition bill recently, what you're about to read will come as no surprise: tuition is too high, in some states more than tripling in the last 30 years. We’re not talking about Ivy League schools with dorms full of students from wealthy families. This is about low- and middle-income students all across the country who open college acceptance letters to public universities and can’t afford to say yes – and those who never apply in the first place because they know there's no way they can pay the bill. It’s about the hardworking, talented students for whom going to college means taking on a mountain of student loan debt. The current system has driven student debt to astronomical levels nationwide:  $1.1 trillion – with a 'T’ – at last count.

Pay It Forward is an innovative alternative to today’s broken high-tuition, high-debt system. Under Pay It Forward, students attend college tuition-free and instead contribute a small, fixed percentage of their income for a set numbers of years after they graduate. Their contributions go to a trust fund which within a generation is completely sustained by graduates' contributions – creating a community of responsibility and security around higher education for generations to come.

We need to pressure our lawmakers to make higher education a budget priority and keep tuition down. And at the same time, students need immediate solutions to the debt crisis. Pay It Forward is a way forward that gives every student the chance to climb a ladder to opportunity, instead of a mountain of debt.

What is Pay It Forward and how does it work?

A:

Pay It Forward is an innovative rethinking of how students access higher education. Under Pay It Forward, students attend college with no upfront tuition or fees. Instead, they contribute a small, fixed percentage of their income after graduation (1% to 5%) for a set number of years (15 to 25) into a public higher education trust fund. This fund becomes self-sustaining within one generation and provides college access to the next generation of students, giving each generation the same opportunity to attend college tuition-free. The actual percentage contribution and number of years would vary depending on the Pay It Forward plans established by each state.

What do you mean by tuition-free degrees?

A:

Upfront tuition is both a psychological and financial barrier to going to college. It's also the main driver of student debt. Pay It Forward removes these barriers, so a student can choose to attend college without paying a dime in tuition. Instead, she agrees to participate in Pay It Forward and contribute a small, fixed percentage of her income for a set number of years after graduation, no matter her income.

What would my contributions after graduation look like?

A:

Each Pay It Forward program has a set contribution rate and length, based on the cost of education at the particular institution. Each particular student’s contribution will depend on her income and number of years she attended college while on Pay It Forward.

The modeling in the examples below is based on census data for average incomes, taking into account years after college and highest degree obtained. For example, the average income for someone with a Bachelor’s degree one year after graduation is $26,669, and $18,456 for an Associate degree holder.

Imagine a hypothetical Large State University (LSU) where, based on LSU’s current cost of education, students who participate in Pay It Forward agree to contribute 1% of their Adjusted Gross Income (AGI) per year of college for a period of 15 years. (AGI is an individual's total gross income minus specific deductions, as determined by the Internal Revenue Service.)

Now, LSU student Agnes attended LSU for 4 years; her friend Bernice attended for 2 years (having transferred in from a community college). So, Agnes will contribute 4% of her AGI for 15 years, and Bernice will contribute 2% of her AGI for 15 years.

After college, Agnes becomes a paralegal, earning $30,000 per year. After 10 years, her salary is up to $55,000 per year. But two years later, she has to go part-time for health reasons, and her salary decreases to $25,000. Here’s what her contributions would look like:

Years after completion

Annual Income

Monthly Income

Monthly 4% Contribution

1

$30,000

$2,500

$100

10

$55,000

$4,583

$183

15

$25,000

$2,083

$83

 

Bernice was unemployed for parts of her first two years out of State University, but after that she became a medical assistant and earned the average income for a B.A. holder for the rest of her career. Here’s what her contributions look like:

Years after completion

Annual Income

Monthly Income

Monthly 2% Contribution

1

$15,000

$1,250

$25

10

$54,395

$4,533

$91

15

$62,938

$5,245

$105

 

Because Pay It Forward contributions are tied to income, they are always both predictable and manageable. And since Pay It Forward is not a loan, graduates’ finances are not jeopardized by loans with principal compounded by interest. Agnes and Bernice are free to use their remaining income (96% and 98%, respectively) to buy a house or a car, or start a family or a business.

Is Pay It Forward a loan?

A:

No. Unlike a loan, under Pay It Forward there is no principal amount, no minimum or maximum payments, and no interest. Instead of being charged upfront tuition and paying it back, students agree to contribute up to 5% of their income to a public trust fund for up to 25 years, thus “paying it forward”. 

What if I drop out?

A:

The Pay It Forward model bases contributions on the number of years attended or credits taken (for example, 1% of income for each full year attended). If a student pursues college for only two years, her contribution at this rate would be 2% of her income for the agreed-to number of years.

What if I’m unemployed?

A:

Unlike income-based repayment or a private student loan, under Pay It Forward, unemployment wouldn’t affect your status. Monthly contributions to Pay It Forward are completely calibrated to your income, so if your income is $0, your contribution is $0. When you start earning income again, you make contributions based on whatever that income is.

What types of schools will offer Pay It Forward?

A:

Pay It Forward can be implemented at any public higher education institution across the full spectrum of education – from technical certificates for IT technicians to graduate school for physician assistants. Currently, Pay It Forward has not been implemented anywhere, but pilot programs are being devised in various states that include:  offering a certain number of Pay It Forward slots across a given state; offering Pay It Forward at one or more small community colleges or at one university; providing Pay It Forward as an option to the entire graduating class of one or more high schools; offering Pay It Forward to STEM majors at a select college or university; and implementing Pay It Forward at graduate programs for health professionals.

How will Pay It Forward impact low- and middle-income students?

A:

First, let’s talk about what’s low, and what’s middle, income – and what that means when it comes to paying for college. Median household income in the U.S. is $53,046 annually, and 4 out of 5 American families have a household income below $100,000. With tuition costs at state universities and community colleges skyrocketing, that means a majority of students and families are being priced out of higher education. For every student, their Pay It Forward contribution will be a known, small and manageable percent of their future yearly income.                                                                                                                      

Tuition “sticker shock” and risky loans disproportionately drive low-income students away from higher education opportunities. For those students who seek higher education, enormous debt burdens inhibit gains in economic mobility or security.

Under Pay It Forward, low-income students who qualify for state and federal financial aid will still be able to access that aid. That aid could be used to cover costs outside of tuition, such as books, housing and food. Students can choose to participate in Pay It Forward for any remaining tuition costs, and contributions can be prorated as necessary to reflect the student’s participation in Pay It Forward.

For middle-class students, who may be just above the income requirements for financial aid, coming up with the money to pay tuition is a huge barrier for entrance into and completion of college. This is especially true in the post-Recession era in which typical household income and wages have stagnated. Pay It Forward removes this cost barrier to higher education for these students, instead of encumbering them with unmanageable loan and interest payments to cover tuition as often happens today. 

Will Pay It Forward replace state funding for higher education?

A:

No. It is imperative that states continue to invest – and increase investing – in higher education. Pay It Forward is part of a comprehensive solution to higher education access and affordability. To this end, many states considering Pay It Forward pilot programs also have efforts underway to freeze or limit tuition increases. Legislators understand that Pay It Forward must be considered in tandem with policies that restore state funding to higher education.

Why Pay It Forward Now?

A:

Pay It Forward is a step toward restoring students’ access to higher education, upward economic mobility, middle-class quality of life and a successful pursuit of the American Dream.

Some form of post-secondary training is a prerequisite for family wage jobs. But tuition has never been higher, and it has never been harder for low- and middle-income students to go to college. While we must remain dedicated to stopping tuition hikes, we also have to give our students better options now.

Our economy demands that we take action on college access now. Good jobs increasingly require workers with higher education, and our nation’s economic growth depends on developing a workforce ready for 21st-century jobs in the global economy. By 2018, 2 out of 3 jobs will require some college, and 1 out of 3 will require a Bachelor’s degree. We must increase the number of college graduates to meet workforce needs.

Tuition is too high for most families to pay without taking on debt. Even if students are willing and able to take out loans to pay tuition, those loan payments make it harder for them to get on their feet once they graduate – not to mention buy a house or start a business. These graduates (and would-be graduates) are barred from the upward economic mobility that a college education can provide.

What's the history of Pay It Forward

A:

Pay It Forward was developed by the Economic Opportunity Institute, a Seattle-based non-profit, in 2011. In 2012, a group of Portland State University students found EOI's proposal when researching solutions to the student debt crisis. Fast forward six months and that same group of students was championing Pay It Forward in the Oregon State Legislature. On July 1, 2013, the Oregon legislature unanimously passed the nation's first Pay It Forward bill.

In just one year, 25 state legislatures have introduced Pay It Forward legislation and federal bills to subsidize start-up costs have been introduced in both chambers of Congress. California, Illinois, Louisiana, New Mexico and Maine have passed Pay It Forward study bills and are moving forward to design their state's first tuition-free pilot programs.